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Customer Churn Rate measures the proportion of customers lost during a specific period.
Assessing this metric is crucial for understanding product-market fit and the long-term viability of a business model. It's useful for gauging customer satisfaction, projecting revenue, and adjusting customer success strategies. Companies leverage this metric to fine-tune pricing, service offerings, and market approach.
Number of Customers Lost During Period / Number of Customers at Start of Period x 100
To calculate Customer Churn Rate, divide the number of customers lost during a specific period by the number of customers at the start of that period. Then, multiply the result by 100 to express it as a percentage. For example, if you started with 100 customers and lost 5 over a month, your churn rate is (5/100) x 100 = 5%.
The three leading causes of churn are poor onboarding, weak customer relationship building, and poor customer service. So, be proactive with communication and education around your product. Invest in offering effective customer support to address issues and provide excellent customer service. If a customer churns, make an effort to deeply understand why they churned. Generally, spending resources on retaining current customers has a higher ROI than spending resources on acquiring new ones.
Customer Churn Rate is solely a customer count metric. Hence, it conceals variations in revenue, particularly if higher-value customers defect. Also, don't underestimate the compounding nature of Churn. It not only affects current revenue but also eliminates future opportunities to upsell or cross-sell to those customers. Churn represents not only the loss of a single transaction but the remainder of a customer's LTV.
